Income protection reforms proposed

27 Oct 14

Income protection for employees should be built into the workplace to ensure people are properly protected in the event of long term sickness or injury, the Association of British Insurers (ABI) has said.

The ABI worked with the Centre for Economic and Social Inclusion (Cesi) to conduct research into the income safety nets of UK households in the event of 1 person not working due to illness or injury.

The Cesi has proposed 2 possible models that would increase the role of the workplace in providing income protection insurance.

Under a time-based collective insurance system:

employers would be required to provide insurance that provides full income for all employees for up to 1 year of serious illness or injury

individuals and employers would be required to have income insurance for cover absence up to a specified limit

this could be done either through auto-enrolment or by compulsion

the state would provide cover for absence lasting longer than 5 years.

Under an individual income replacement insurance scheme:

each employee would have a compulsory 'individual account'

the individual and the employer would pay contributions alongside their auto-enrolment scheme

this could follow the auto-enrolment opt-out model.

Helen White, head of protection at the ABI, said:

"Reforming our broken welfare system so that it focusses on those most at need, yet is effective in persuading and helping people to put in place their own financial safety net against unexpected loss of income, is one of the most important issues facing society.

"This is why we are working with policymakers, employer representative bodies and other stakeholders in exploring solutions, one of which is an increased role for insurance through the workplace, to closing the gap between expectation of state help and the reality."